It Is Official: China Is In The Toilet

For much of the last two decades, China was responsible for a large percentage of global growth. When putting up numbers in double digits, we can see why.

There was a time, not too long ago, where a reading under 8% in GDP growth was considered awful. Now, that is an outstanding forecast.

The reality is that China is now experiencing a "new normal". What this looks like, exactly, is unknown. That said, we can expect that lower numbers as compared to the past are part of the equation.

It is official: China is in the toilet.

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Source

Less Bad

China is not alone in this situation. It is merely following in the footsteps of Japan, the EU, and the US. Each, for a variety of reasons, saw their growth rates slow to an absolute crawl. It is likely that at least one of these regions starts to see a consistent decline each year.

Demographics, after all, cannot be easily escaped.

The news out of China is that the GDP for 2022 was an abysmal 3%. This was better than the expection of 2.8% as industrial production suprised to the upside. It was aided by a "less bad" number in retail.

This is really the essence of what takes place. As the numbers decline, the narrative shits from one of massive gains to "things aren't as bad as we thought". Again, we saw this happen consistenly in the other economic centers around the world.

Another observation is the long term growth rates.

Much like the rest of the world, China saw its rates slow post Great Financial Crisis. This broke with the longer term trend which was sent over decades. Also, similar to the other developed countries, the pace from 2009-2019 is also not being matched. That means we are seeing the country get further behind the old trend.

It is situation that many are hoping turns around.

Huge Bounce Back

Many attribute China's situation to the stance it took regarding the pandemic. The zero tolerance policy is well known by now. There is no doubt the Chinese lockdowns affected the production throughout the year.

Or did it?

It is one thing to presume the supply side of the equation was disrupted due to the lockdowns. However, few seem to question the demand side.

China is still the major component in global manufacturing. Unfortunately, its customers, i.e. the rest of the world, has seen a decline of even greater proportions. This is going to have some impact upon the demand.

In short, the Chinese economy was below the 7% baseline rate in 2017. It is also falling below the post 2019 rate of 6%. The government has anticipated a 5.5% growth in GDP at the beginning of 2022, they were barely above the halfway mark.

This should not be any great surprise. We discussed a great deal about the yield curve over the past year and how it was telling us things were going to get bad economically.

Here is the yield curve again from CNBC.

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That is not very healthy looking.

A century ago, Irving Fisher noted the long-end of the curve depicts inflation and economic growth expectations. What this has been telling us is that inflation is not going to be a problem and you can cross growth of the economy off the list.

The economic engine of the last 20 years is sputtering. This is not a positive sign.


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8 comments
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I really like your title. I want to say that China is the shit of the world. China's bad influence on our country is too much.

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I am not a fan of the Chinese either, I hope African leaders only do business with them with their brains at full functioning capacity.

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I think China is also dominating and manipulating Africa's economy. Sri Lanka's debt crisis is also due to China.

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It’s likely worse than that. There’s a history of China’s official growth statistics being a bit suspect with a bias to happy numbers. What local CCP administrator reporting the numbers up the food chain wants to not look as good as others in the province?

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It's definitely interesting to see what is taking place in China. I wonder where things will shift and who will pick up the slack if China sputters out even more than already seen here. Will there be a resurgence of economic activity motivated by another country? Hard to say yes but it's possible!

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So the Economy is busy playing catch with inflation and seems to be on the loosing end over the last few years. Well, shocking.

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I spend most of my time there, not as bad as publicized.

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My favourite part was "the narrative shits"… probably an f in there somewhere but a great typo nonetheless!

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